Benefitting a Charity Through Your Estate or Trust

You would like to benefit your favorite charity through your Estate or Trust, but is leaving a specific bequest in your Last Will and Testament or Trust the only option?  Simply, the answer is NO.  You have options.  Here’s one for you to consider.

You have an IRA or retirement-type account for which you can designate beneficiaries to benefit from the same when you pass.  However, when any distributions are made from an IRA or retirement-type account, there are likely to be income tax consequences to the beneficiaries.  If your asset has been in existence for a considerable period of time, the asset has likely appreciated in value and that appreciation – the income earned – is income taxable to the beneficiary.  So, when the beneficiary receives the distribution from the asset, they will have to report an amount from the distribution on their income tax return. 

Let’s look at the analysis.  What you leave to a beneficiary via a Will or Trust is not income taxable (only to the extent there may have been income earned on the asset for one tax year), however if a beneficiary receives distribution of a retirement-type account, there could be significant income tax consequences to the beneficiary in the year(s) of distribution. 

For income tax purposes, human beneficiaries are subject to income tax while qualified charities are exempt from income tax.  So, why not benefit your favorite charity through your retirement-type asset?  Definitely something to think about. 

If you think this may be something you would like to do, you should contact a professional – attorney, accountant, financial advisor – to get more information and have them analyze if this may be something that would be beneficial to you. 

In closing, a couple of additional thoughts – beneficiaries of a retirement-type account can have access to their inheritance much sooner than waiting for an estate to be administered, but please make certain that your favorite charity is a qualified non-profit organization. 


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About the Author

Kay Sowa is a paralegal in the Trusts and Estates Group at Capehart & Scatchard, P.A. She is an IRS Enrolled Agent, an Accredited Estate Planner®, and a Certified Trust and Fiduciary Advisor. She oversees the trust and estate administration practice for the firm. She is an accomplished author and lecturer who has frequently spoken on behalf of a number of organizations including the National Business Institute and the Institute of Paralegal Education.

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